CHAPTER 3 BRIEF SUMMARY
PRODUCT COSTING AND COST ACCUMULATION IN A
BATCH PRODUCTION ENVIRONMENT
Discuss the role of product and service costing in manufacturing and nonmanufacturing firms.
Diagram and explain the flow of costs through the manufacturing accounts used in product costing.
Distinguish between job-order costing and process costing.
Compute a predetermined overhead rate, and explain its use in job-order costing for job-shop and batch-production environments.
Prepare journal entries to record the costs of direct material, direct labor, and manufacturing overhead in a job-order costing system.
Prepare a schedule of cost of goods manufactured, a schedule of cost of goods sold, and an income statement for a manufacturer.
Describe the two-stage allocation process used to compute departmental overhead rates.
Describe the process of project costing used in service industry firms and nonprofit organizations.
Product and Service Costing
Use in financial accounting
Use in managerial accounting
Use in cost management
Use in reporting
Flow of Costs in Manufacturing Firms
Cost of goods sold
Types of Product-Costing Systems
Job-order costing systems
Job-Order Cost Accumulation
Terminology and application steps
Incurrence of actual overhead
Adjusting the over- or underapplied overhead at the end of the accounting period
Extended Illustration of Job-Order Costing: Calculations and Journal Entries
Schedule of cost of goods manufactured
Schedule of cost of goods sold
Further Aspects of Overhead Application
Actual and normal costing
Choosing the appropriate cost driver
Departmental overhead rates
Two-stage cost allocation
Project Costing in Nonmanufacturing Organizations
Description of the overall process
Key Lecture Concepts
PRODUCT AND SERVICE COSTING
A product-costing costing system accumulates the total cost of making products and facilitates the calculation of a per-unit cost. Applications exist in:
Financial accounting: Valuation of ending inventory on the balance sheet and determination of cost of goods sold for the income statement
Managerial accounting: Planning, cost control, and decision making
Cost management: Cost control and cost reduction
General reporting: Audience includes state regulatory agencies, insurance companies, hospitals, and the government.
Managers of nonmanufacturing organizations need product-cost information as well. For example, product costs are used by accounting firms, which set a contract price for audit jobs, and by hospitals, which are reimbursed on a per-case basis under Medicare.
FLOW OF COSTS IN MANUFACTURING FIRMS
As production takes place, manufacturing costs are tracked in the Work-in-Process Inventory account. Every product is made up of three cost components: direct materials, direct labor, and manufacturing overhead. After products are completed, the corresponding cost leaves the Work-in-Process account and is debited to the Finished-Goods account. (A merchandising firm buys its goods already completed and directly debits the items' cost to Merchandise Inventory.)
When units are sold, the Finished-Goods Inventory account is credited and Cost of Goods Sold is debited.
TYPES OF PRODUCT-COSTING SYSTEMS
A product-costing system must be adapted to match the environment in which it operates.
A job-order costing system is used in an industry where products are made individually, or in relatively small...
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